Warner Music may not renew yearly iTunes contract - report

Steve Jobs helped save a sinking music industry by courting struggling record labels to his iPod + iTunes ecosystem, but his bargaining position hasn't been as strong when it comes to video content. As a result, some music companies are now starting to reexamine their relationships with Apple, writes the Washington Post.

In a three-page report published by the paper Thursday, the Post's Frank Ahrens steps through the turbulence facing the Cupertino-based company's media content business as it simultaneously enjoys smooth sailing on the hardware front.

"[A]fter Dec. 1, when Apple's contract with NBC expires, all shows that NBC Universal owns, past and present, will disappear from the site," Ahrens explains. "That includes shows from Sci Fi, USA and Bravo cable channels.

In a letter sent to Apple on Oct. 9, NBC Universal charged the iPod maker with breach of contract, according to the report. Although it's reported the NBC is unlikely to pursue legal action, "the two sides have stopped negotiating and there appears to be no resolution in sight," Ahrens adds.

Meanwhile, Universal Music Group -- the world's largest collection of record labels -- told Apple earlier this year that it would not renew its yearly exclusive contract and instead would go month-to-month so it could be free to deal with other distributors.

Over the past year, sales of Universal songs for cellphones around the world have soared, Ahrens says. And Universal, which has 35 percent of the U.S. music market, is now discussing deals with U.S. mobile-phone companies.

These moves and others appear to have emboldened other content providers to take a stand against Apple's stringent licensing terms. Citing a "source with knowledge of the discussions," Ahrens claims that Warner Music Group, whose contract with Apple expires at year-end, is now also considering switching to a month-to-month deal for content it offers through Apple's iTunes Store.

While some industry watchers are calling moves by NBC and others "a mistake," NBC Universal spokesman Cory Shields is quoted in the piece by the Post as saying that his company's programs are one of the primary factors that help drive sales of Apple hardware.

Comments

With Radiohead putting out their own album and Apple now courting artist directly, you can finally start seeing the unraveling of the present day recording industry. Apple has a chance to become the new record industry but if artist go all the way themselves then even Apple's days are numbered in the music biz.

I still don't get how they can complain that Apple is giving them a new revenue stream that exists only because of Apple and their ipod.

Are you shittin' me? They're thinking about all the money they *could've* made had they been smart enough (and possessed the technological prowess) to come up with Apple's business model themselves. They are friggin' envious to death of Apple/iTunes/iPod. The problem is, because the business model is already out there for scrutiny, they get the impression that maybe they COULD pull it off themselves. More likely than not they're wrong, but that won't stop any greedy bastard from trying.

With Radiohead putting out their own album and Apple now courting artist directly, you can finally start seeing the unraveling of the present day recording industry. Apple has a chance to become the new record industry but if artist go all the way themselves then even Apple's days are numbered in the music biz.

I really appreciate and respect what Radiohead did, but their strategy is simply not viable for most every band or artist out there. Radiohead have an extremely loyal and informed following, so they can afford not to have to do the kind of marketing and distribution that most bands wrestle with. The point is, I don't see what an upcoming band (or even an established one with a weaker fan base than Radiohead - i.e. every band but Radiohead, pretty much) can learn from Radiohead's example.

It sickens me that these content providers just dont give a @#$! about their customers. They are perfectly willing to essentially trash a great service like iTunes and offer NO viable alternative.

Case in point: Me and the wife watched Heros season one as downloads from iTunes. Tried watching season two from NBC site.....besides the really annoying forced commercials, the quality was crap and I couldnt put it on my TV. Had to watch it on my notebook.

I really appreciate and respect what Radiohead did, but their strategy is simply not viable for most every band or artist out there. Radiohead have an extremely loyal and informed following, so they can afford not to have to do the kind of marketing and distribution that most bands wrestle with. The point is, I don't see what an upcoming band (or even an established one with a weaker fan base than Radiohead - i.e. every band but Radiohead, pretty much) can learn from Radiohead's example.

Sorry, but you're simplifying things a bit here. There's more to the future music business than direct markeing a la Radiohead. Today many unknown artists get a platform on the internet and a chance to get their stuff out to the public. Just reset the clock by ca. 10-15 years and put yourself into the position of a music artists trying to accomplish this. See what I mean?

Are you shittin' me? They're thinking about all the money they *could've* made had they been smart enough (and possessed the technological prowess) to come up with Apple's business model themselves. They are friggin' envious to death of Apple/iTunes/iPod. The problem is, because the business model is already out there for scrutiny, they get the impression that maybe they COULD pull it off themselves. More likely than not they're wrong, but that won't stop any greedy bastard from trying.

Right on the nose. It goes like this:

1. Apple approaches record companies about selling digital music in a big way. "Har!" the executives say. "This digitable model of yours amuses us! Why should we enter such a niche market? Away with you!"

2. Apple launches iPod + iTunes with a relatively small music catalog. It catches on anyway.

3. The executives now say, "well, perhaps there is something to this so-called "i-tunes". Here's some music we're sending out to every radio station in Poughkeepsie - see if you can sell it." It sells, and in a matter of years, the model becomes very, very successful.

4. The executives now go, "hey, good merchant - could you not sell this music of ours for more, or give us a bigger cut?" Apple goes, "dude, we think we have the prices pretty well figured out. Chill. It's only going to get sweeter from this point on.

5. The execs go, "Bah humbug! Then we shall launch our own service! How hard could it be? We've been in this business forever! Sure, it'll take some computer know-how and design and a radical rethinking of our current model and an ecosystem that supports our store... how hard could it be? Har!"

The optimistic view for the future is, they realize they can't really do this - hopefully sooner rather than later. The pessimistic view is, while their actual sales go down, they make more per sale and they invest more money in advertising and promotions and similar dangling carrots which eventually draw begrudging crowds... and we have the same lame music distribution model we had in the pre-digital days.

It sickens me that these content providers just dont give a @#$! about their customers. They are perfectly willing to essentially trash a great service like iTunes and offer NO viable alternative.

Case in point: Me and the wife watched Heros season one as downloads from iTunes. Tried watching season two from NBC site.....besides the really annoying forced commercials, the quality was crap and I couldnt put it on my TV. Had to watch it on my notebook.

ME: Paying fair prices on itunes was good. Take that away. free content I can keep (torrents) are better. And will happily fill ipods. Obvious they are trying to control the distro market, but jsut ain't going to happen. iTunes was also a content aggregator, when will the Media get it?

Sorry, but you're simplifying things a bit here. There's more to the future music business than direct markeing a la Radiohead.

That's what I'm saying. My post was simply pointing out that the model of 'In Rainbows' doesn't really signal any sort of sea change in the industry, as the previous poster had implied.

Quote:

Originally Posted by doemel

Today many unknown artists get a platform on the internet and a chance to get their stuff out to the public. Just reset the clock by ca. 10-15 years and put yourself into the position of a music artists trying to accomplish this. See what I mean?

I'm afraid I don't. Internet marketing is becoming the same as other marketing - reset the clock by 10-15 years, and there's so much of it on the Net (much of it "viral", or whatever sneaky scheme we'll have then) that a small artist again can't compete. You think that posting a funny video on YouTube will make stars of more than a handful of lowest-denominator indies in 10 years, when large companies are pumping loads of money into the same channel?

Yearly contract or no, and temporary posturing/withdrawals aside, the big content providers will keep dealing with iTunes because it makes them increasing amounts of money. And they'll deal with other online music stores too. Nearly all of which will flounder, but competition is good. The ones that emerge as successful will be those that move towards DRM-free and really high quality. Like Amazon MP3 Store, and especially iTunes. All of those songs will play on iPods and non-iPods alike, and can be managed through iTunes.

Meanwhile iPods--Apple's real money-maker in music--will continue to sell through the roof. If anything, the emergence of other iPod-friendly stores like Amazon will HELP Apple, not hurt them. A major label could go ALL-Amazon and not iTunes and people would STILL buy iPods to play those songs.

Now, if a major label goes all-Microsoft, all-Windows-Media, I don't expect that to work out well for anyone. It would be a short-lived experiment, and their catalog would then be back on the iPod (whether on iTunes or not). And right now we're not talking about anything even THAT serious--just a non-renewal of contracts and exclusives, not pulling of music from iTunes.

The industry is changing, and Apple may not get yearly commitments as easily. But they'll still sell more iPods and more music downloads than ever before, they'll still get exclusive promo deals, and the whole situation will still get better and better for Apple AND for consumers AND for the music labels themselves--whether they fight the changes or not. And video content owners will come to catch on too.

okay, i understand if NBC has a movie service comperable to iTunes (you can download it, keep it, move it around between devices) maybe they might want to roll the dice.

but they don't!

Very true. I'm really hoping that media companies don't do this, but I can totally envision a future where they're offering a crappy store with crappy content that's confusing to find, organize, and use - and it actually sells. If they sell it ONLY in this way, and if enough of them do it, the elegance of Apple's iPod + iTunes system might take a back seat.

Are you shittin' me? They're thinking about all the money they *could've* made had they been smart enough (and possessed the technological prowess) to come up with Apple's business model themselves. They are friggin' envious to death of Apple/iTunes/iPod. The problem is, because the business model is already out there for scrutiny, they get the impression that maybe they COULD pull it off themselves. More likely than not they're wrong, but that won't stop any greedy bastard from trying.

That's why they call it : second guessing, or if you like : Monday morning quartebacking...

That's what I'm saying. My post was simply pointing out that the model of 'In Rainbows' doesn't really signal any sort of sea change in the industry, as the previous poster had implied.

I'm afraid I don't. Internet marketing is becoming the same as other marketing - reset the clock by 10-15 years, and there's so much of it on the Net (much of it "viral", or whatever sneaky scheme we'll have then) that a small artist again can't compete. You think that posting a funny video on YouTube will make stars of more than a handful of lowest-denominator indies in 10 years, when large companies are pumping loads of money into the same channel?

I see we understand each other. My point is, that music today, and in the future, finds its way through channels that the majors can't control anymore because the channels are evolving too quickly and the behemoth labels are always playing catch up with their yesteryear's mindet.

It's an oversimplication to think that what's happening doesn't matter to Apple. Of course it does.

Perception is very important. The average consumer doesn't understand what's happening any more than some here There is a political threat going on. I've said that others might try to duplicate what Universal is doing, and quite a few here said that it would never happen. Well, it is.

These companies, whether we think they are right or wrong, want to control how, and for how much, their content gets sold. They have that right, just as Apple has the right to ty to force them into their mold.

We really don't know what the future will bring, and we don't know if prices will really go up. But, if the masses get the idea, correct or not, that content may be leaving iTunes, that could hurt Apple.

This is the time for Apple to join forces with production companies (just like Netflix, Sundance, Starbucks, et al, are doing) and co-create content... and like Madonna is doing, Apple could co-sponsor tours.